A period certain annuity is a payout structure that guarantees payments for a specified number of years, and only for that period, whether the annuitant is alive for all of it or dies partway through, in which case the remaining scheduled payments, or their value, pass to a named beneficiary.
Period Certain Annuity
A period certain annuity pays income for a fixed, predetermined number of years, regardless of whether the annuitant lives the whole time or dies early, in which case a named beneficiary receives the remaining payments.
Last reviewed by Steven Fox, CFP®, EA
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Quick Summary
- Payments run for a set period, such as 10 or 20 years, rather than for the rest of someone's life.
- If the annuitant dies before the period ends, a named beneficiary receives the payments, or their present value, for the remainder of the guaranteed period.
- Because there's no lifetime mortality risk to the insurer, a pure period certain annuity offers no protection against outliving your money on its own.
- Combined with a lifetime payment, it creates a common hybrid, "life with period certain," which pays for life but guarantees a minimum number of payments to a beneficiary.
- A longer guarantee period generally means a smaller payment amount, all else equal, since the insurer is committing to pay for longer regardless of survival.
Definition
Advanced Explanation
A pure period certain annuity isn't designed to solve longevity risk: because payments end on a fixed schedule rather than continuing for life, it offers no protection against the annuitant outliving the payout period. What it solves instead is the concern that a lifetime annuity's payments simply vanish if death comes early, with nothing left for anyone.
The far more common real-world use is the hybrid "life with period certain," sometimes called a life annuity with period certain, which pays for the annuitant's entire life, like a single life annuity, but adds a guarantee: if the annuitant dies before a stated number of years, commonly 10 or 20, have elapsed, the remaining payments in that period continue to a named beneficiary rather than stopping. This blends the two structures' logic: lifetime income, with a floor under the worst-case outcome of an early death. Because the insurer is now on the hook for whichever is longer, the annuitant's actual lifespan or the certain period, a life-with-period-certain annuity pays somewhat less per month than a pure single life annuity of the same premium, and a longer guarantee period reduces the payment further.
Used in a Sentence
“Worried about dying soon after retiring and leaving nothing for his kids, Oscar chose a life annuity with a 20-year period certain, which guaranteed his children would receive at least 20 years of payments even if he died the year after buying it.”
How It Works
A hypothetical illustration: an insurer quotes Rosa a pure single life annuity of $1,000 a month, and a "life with 10-year period certain" version of the same premium at $950 a month, a reduction of $50, or 5% ($50 ÷ $1,000). If Rosa dies after only 3 years of payments, 36 months, her beneficiary receives the remaining 7 years, 84 months, of guaranteed payments at $950 a month before the guarantee is exhausted (120 months in the 10-year period, minus 36 already paid, equals 84 remaining). If Rosa is still alive after 10 years, payments simply continue for the rest of her life with no further guarantee.
Pros and Cons
Pros
- Guarantees that early death doesn't forfeit the whole value of the contract to the insurer, unlike a pure single life annuity.
- The guarantee period and beneficiary are clearly defined and easy to explain to family members.
Cons
- A pure period certain annuity, without a life component, provides no protection against outliving the payments, since they stop on a fixed date no matter what.
- Adding a period-certain guarantee to a lifetime annuity reduces the monthly payment compared with a pure single life annuity of the same premium.
- The certain period is usually much shorter than a full retirement, so it solves an early-death problem, not a longevity problem.
People Also Asked
Answers to the most frequently asked questions.
What's the difference between a period certain annuity and a single life annuity?
A single life annuity pays for as long as the annuitant lives and stops entirely at death, no matter how soon. A period certain annuity pays for a fixed number of years regardless of survival, and passes any remaining guaranteed payments to a beneficiary if the annuitant dies first.
Does a pure period certain annuity protect against outliving my money?
No. It pays for a fixed period only, so if you outlive that period, the payments simply stop. Longevity protection comes from a lifetime payout structure, such as a single life or joint and survivor annuity, not from a period certain one on its own.
What happens to the remaining payments if I die during the certain period?
They go to your named beneficiary, either as continuing periodic payments for the rest of the guaranteed period or, depending on the contract, as a lump sum equal to their present value.
Why would I combine a period-certain guarantee with a lifetime annuity?
To limit the worst-case outcome of a pure lifetime annuity, which is dying shortly after payments start and leaving nothing behind. The trade-off is a smaller monthly payment than a pure lifetime annuity, in exchange for a guaranteed minimum payout to a beneficiary.
Sources
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